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Survey spots pricing trends of the big five

Johannesburg – While consumers are becoming more conscious of how they are spending their money, the JPMorgan South African supermarket pricing survey offers a road map on who is the cheapest retailer among the big five.

For fast-moving consumer goods (FMCG) it looked at Massmart, Shoprite, Pick n Pay, Spar and Woolworths. In the fresh food category it considered Food Lover’s Market to be a justifiable competitor.

The study, released earlier this month, suggests that Massmart offers the lowest prices in both the mid-market, through Makro, and lower-end market through Cambridge.

It suggests that in the low-end basket price comparison, Massmart’s Cambridge stores have prices 11 percent lower compared to Shoprite.

Cambridge is followed by Usave which offers a 9 percent discount to Shoprite.

The survey also revealed that when it comes to the cheapest retailer in consumer goods products in the low-end basket, Cambridge led the pack, while Shoprite was found to be the more expensive in this category.

While the premium retailer Woolworths closely competes with Pick n Pay as far as fresh food is concerned, South Africa’s market darling, Shoprite’s chain Usave, was found to be cheaper than Pick n Pay’s lower-end retailer Boxer supermarkets.

The survey used a low-end and a mid-market basket to account for the wide income disparity of South African consumers which drives divergent buying behaviour.

The study was conducted only in Gauteng in mid-January. It attempted to capture 30 items to make up a shopping basket. The basket included FMCG goods from food, personal care, household cleaning products, dairy, meat, fruit and vegetables.

“Given our limited sample size, we present the results as indicative, rather than conclusive, but feel the results provide useful insights into the strategic positioning of the five key players,” the report said.

Massmart offers the lowest prices in both the mid- and low-end markets. “Given its late entry into food retail, we think the discount pricing is driven by Massmart’s need to differentiate in order to attract customer interest.”

However, Massmart’s share of food retail at around 5 percent remained too low to force competitor price reaction at this point.

Having said that, the survey suggests that, in the long term, Massmart could very likely be the key disruptor to the existing pricing regime.

In the mid-market basket for consumer goods, Makro and Checkers were found to be the cheapest and were both at a 6 percent discount to Pick n Pay. Woolworths was found to be 13 percent more expensive than Pick n Pay on the mid-market basket. This was due to its fresh food offering which is at a 24 percent premium.

However, Woolworths was only 1.8 percent premium to Pick n Pay in the FMCG category, the study said. “We think Woolworths customers understand and are comfortable with the quality premium on the fresh offering, but do not believe they understand that the retailer’s consumer goods are in-line with Pick n Pay.”

However, as the customers’ awareness builds up it is expected that Woolworths’ trolley strategy will become increasingly successful as it gains FMCG market share from Pick n Pay. Zooming into Pick n Pay, the survey revealed that Pick n Pay priced 2 percent above Checkers on the mid-market basket and 1 percent below Shoprite on the low-end basket.

“This approximate parity pricing is important as it suggests that Pick n Pay is unlikely to have to be materially lower in order to compete more effectively with Shoprite as part of its turnaround strategy.”

The survey said this suggests that improvements in logistics costs can be taken to gross margin, rather than have to be invested in price. In its year-end to March financial results, Pick n Pay said its shortfall between its growth and overall market growth had narrowed to 0.7 percentage points from 2.5 percentage points a year earlier.

Spar was priced 2 percent premium to Pick n Pay in the mid-market basket, including a 4 percent premium on FMCG and a 1 percent premium on fresh offering.

It was also highlighted that the premium at which Spar’s FMCG was priced was relative to Woolworths, which could suggest that Woolworths can still make inroads into Spar’s market.

Meanwhile, Shoprite, which claims to have the lowest prices, and Checkers were found to have price-parity to Pick n Pay.

Interestingly, Shoprite’s Usave has a 9 percent discount relative to Shoprite which was in line with the discounting format. It was found that Usave was materially cheaper than Boxer. “Our study shows, however, that Cambridge offers marginally better pricing than Usave on both consumer goods and fresh offering, and materially sharper pricing than Usave on the consumer goods and fresh offering, which suggests that Shoprite’s long-term ability to price at the low end of the market could be at risk if Cambridge were to gain critical mass.” Massmart opened five Cambridge stores in 2013 and plans to open another seven stores this year.

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